A balance transfer can be an ideal solution if you’re struggling to pay off your loans or credit card debt, or if high interest rates are keeping you from making much of a dent in your overall balance — but what is a balance transfer exactly?
Transferring your credit card balance allows you to move your existing debts to a new credit card with a lower interest rate. This transfer doesn’t reduce the amount you owe. Rather, it allows you to pay less interest for a fixed amount of time so you can put more money toward paying off the actual debt. Basically, you’re using a lower-interest card to pay off existing debt from a higher interest one.
You might choose to transfer your balance to a new card for many reasons. Maybe you’ve become disenchanted with your current card’s exceptionally high interest rate. Or perhaps you want to consolidate your debt so you don't have to keep track of multiple due dates for making payments to several different companies each month. Whatever the reason, transferring your balance can be an excellent way to save money - but only when done correctly and for the right reasons.
While most financial institutions offer a special low interest rate for credit card transfers, these rates are only valid for a specific amount of time. So, if you don’t pay off your transferred debt before the rate expires, the move could cost you more in the long run if the interest rate is higher than what you were paying on the original card.
To make them worthwhile, it’s essential to know how the balance transfer process works, its associated costs, and how to use a transfer correctly.
How Do You Transfer Credit Card Balances to Another Card?
Completing a credit card balance transfer is a simple process that can be done one of two ways.
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Digital banking. Many financial institutions — including PSECU — allow you to transfer your balance online. In PSECU’s online banking, click on Manage Cards on the right side of the dashboard, then click on Visa Balance Transfers. In our mobile app, tap the menu in the upper left, tap Manage Cards to select your card, then Visa Balance Transfer and Start Saving.
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Balance transfer checks. A balance transfer check works like a traditional check. Your credit card issuer will send you a check in the mail that you fill out for the amount you need to pay off your existing debt with another company. The amount will be added to the corresponding credit card. Checks are especially useful when transferring non-credit card debt — such as a student loan or car payment — to your transfer card.
To make the process easier, locate the full account number for the card (or loan) you’re transferring your balance from before starting your transfer. You’ll also need to specify exactly how much of the balance you’d like to move.
What Is a Balance Transfer Fee?
Most balance transfers aren’t free. Many credit card issuers charge a small percentage of your transfer as a balance transfer fee.
Balance transfer fees can quickly become costly. For example, if you wanted to transfer a $10,000 loan to a card and the issuer charges a 3% transfer fee, you’d find yourself paying a $300 balance transfer fee.
You can avoid a fee by doing your research and transferring your debt to a credit card with no balance transfer fees - such as our Classic or Founder’s Card.
How Consolidating Can Simplify Your Finances
Managing payments to multiple different lenders each month can become monotonous at best, not to mention stressful and confusing. A balance transfer can take the burden of multiple payments off your shoulders by streamlining your payments into one.
If you have multiple high-interest credit cards, you can transfer balances from each of them – up to the credit limit of the card you’re transferring to. You’ll no longer need to remember to pay the minimum balance on each card every month. Simply keep track of one card and one monthly payment.
Not only can you consolidate credit card debt, but you can also move other types of loans onto your card. However, before you do this, you’ll want to make sure that you’re not losing any protections built into your original loan and that you’ll be able to pay off the balance in full before the low introductory rate expires in order to truly save money. Some issuers will even let you and your spouse combine your individual debts into one transfer if you prefer to pay off your debt together.
Tips for a Successful Balance Transfer
Balance transfers aren’t for everyone. Here are a couple of things to keep in mind before beginning your transfer.
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Be mindful of new purchases. If the card you’re transferring to boasts a significantly lower interest rate than the card you’re transferring from, you might be tempted to make all your new purchases with the card with the lower rate. But keep in mind that the card might have a higher interest rate for new purchases than for your transferred balance, and make sure you understand how your payments will be applied if you’re carrying both transferred balances and debt from purchases on the card.
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Make a payment plan. Credit card issuers often offer a special promotional interest rate for balance transfers, and that interest rate expires after a fixed amount of time. Avoid paying a higher rate by paying off your balance before the promotional rate expires. Create a monthly payment plan that will allow you to pay off your debt with time to spare.
We’re here to help you when you have questions about tough financial decisions. If you already have a Classic Card or a Founder’s Card and you use our digital banking services, follow the instructions above for making a transfer. To get one of our cards, you can apply now to start your balance transfer. You can also calculate your savings with our online tool. You’ll just need to know your current balance and rate to begin.
